Ace Prop & Cslty Ins v. Dorismond

United States Court of Appeals
Fifth Circuit
F I L E D
February 11, 2004
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 03-20592
_______________
ACE PROPERTY & CASUALTY INSURANCE COMPANY,
Plaintiff-Appellee,
VERSUS
DENISE DORISMOND,
Defendant-Appellant.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
m H-02-CV-4871
_________________________
Before JONES, MAGILL,* AND SMITH,
Circuit Judges.
JERRY E. SMITH, Circuit Judge:**
* Circuit Judge of the United States Court of
Appeals for the Eighth Circuit, sitting by desig-
nation.
** Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be pub-
lished and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.

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2
Denise Dorismond appeals a summary judg-
ment in favor of ACE Property & Casualty
Insurance Company (“ACE”). Concluding
that ACE’s insured, Service Merchandise,
breached a duty to ACE by not attempting to
limit liability arising from Dorismond’s original
suit, we affirm.
I.
In 1997, Dorismond was injured in a Ser-
vice Merchandise (“Service”) retail store. In
1999, Service filed for bankruptcy in
Tennessee. Two months later, Dorismond
sued Service in Texas state court.
As a result of the bankruptcy proceedings,
Dorismond’s suit was automatically stayed.
Eventually, she agreed to seek only insurance
proceeds and asked that the stay be lifted. The
bankruptcy court allowed the suit to go
forward on August 5, 2002.
ACE provided an excess insurance policy to
Service at the time of Dorismond’s injury,
covering personal injury damages that exceed-
ed $250,000. Service notified ACE of Doris-
mond’s suit on August 2, 2002SSover five
years after the original injury and over three
years after the original suit was filed. Service
also informed ACE that it did not intend to
defend itself against Dorismond’s state claim.1
Neither Service nor ACE appeared at trial,
and the Texas court entered a default judg-
ment in Dorismond’s favor for $421,516.39.
ACE sought a declaratory judgment, pursuant
to 28 U.S.C. § 2201(a), regarding the amount
it owed under its policy with Service. The dis-
trict court entered summary judgment in favor
of ACE and held that ACE did not owe any
funds to Dorismond.
II.
We review a summary judgment de novo
and follow the same standard as did the district
court. See, e.g., Med. Care Am., Inc. v. Nat’l
Union Fire Ins. Co., 341 F.3d 415, 420 (5th
Cir. 2003). “We likewise review matters of
contract interpretation de novo.” HS Res.,
Inc., v. Wingate, 327 F.3d 432, 440 (5th Cir.
2003). “Summary judgment is appropriate on-
ly if the movant demonstrates that there are no
genuine issues of material fact and that it is
entitled to a judgment as a matter of law.” Id.
We may affirm for any reason supported by
the record, even if the district court did not
rely on such a reason.2 LLEH, Inc. v. Wichita
County, Tex., 289 F.3d 358, 364 (5th Cir.),
cert. denied, 537 U.S. 1045 (2002). Because
this diversity3 action concerns the
interpretation and application of an insurance
contract, Texas substantive law applies. Erie
R.R. v. Tompkins, 304 U.S. 64 (1938).
1 Service’s senior legal counsel sent ACE a
letter that stated, “As Ms. Dorismond has waived
any right to receive a distribution from [Service, it]
does not intend to defend the personal injury case.”
2 The district court held that (1) Service
breached a notice provision of the insurance policy
by waiting three years to alert ACE of Dor-
ismond’s suit; and (2) Service abrogated its duty to
ACE to limit liability arising from the suit.
Because the second ground constitutes ample rea-
son to affirm, we do not address the notice issue or
ACE’s contention that Service and Dorismond
entered into a collusive agreement that violated
Texas public policy.
3 Because this case involves diverse litigants
and an amount in controversy greater than
$75,000, federal courts have jurisdiction under 28
U.S.C. § 1332(a)(1).

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3
III.
Service breached an implied duty to ACE
by taking no action to mitigate damages
arising from Dorismond’s suit. ACE owed no
duty to defend Service; Service had a duty to
take some action to limit damages; and Service
breached such a duty by not defending in
Dorismond’s suit.
First, ACE explicitly removed, through
language in the contract, any possible duty it
might have to defend Service. The policy
stated that it “[did] not apply to defense, inves-
tigation, settlement, or legal expenses, or pre-
judgment interest arising out of any
‘occurrence’ or offense.” Although ACE
retained the right “to assume from the insured
the defense and control of any claim or ‘suit,’”
such intervention was contingent on ACE’s
choice to participate in the defense. A court
may not compel an insurer to defend an
insured when the insurer disavows, in the
contract, any duty to provide a defense.4
Dorismond argues, however, that ACE ex-
ercised its right to intervene and should bear
the costs arising from the default judgment.5
She points to an admission filed in Service’s
bankruptcy proceedings, wherein ACE stated
that it would assume the defense of any
outstanding personal injury claims. At the
time of ACE’s statement, however, the Texas
court already had entered summary judgment
in favor of Dorismond. Thus, with respect to
Dorismond, nothing remained for ACE to
defend.6
Secondly, Service had a duty to take some
action to mitigate liability arising from Doris-
mond’s suit. Texas courts and federal courts
applying Texas law have made statements re-
garding the general duty of a insured to
minimize legal liability.7 Though these courts
have not provided the precise contours of a in-
sured’s duty, the statements suggest that the
insured must take some kind of minimum ac-
tion to limit liability to the insurer.
Service’s failure to act falls outside any rea-
sonable expectations one may have of an in-
sured. Rather than merely carrying out a bad
defense or have some misfortune strike its
4 See, e.g., St. Paul Guardian Ins. Co. v. Cen-
trum GS, Ltd., 283 F.3d 709, 713 (5th Cir. 2002)
(“When the language of an insurance policy is not
ambiguous, it is our duty to give the words used
their plain meaning.”); Harville v. Twin City Fire
Ins. Co., 885 F.2d 276, 279 (5th Cir. 1989) (ap-
plying Texas law and holding that, even if a pri-
mary insurer who otherwise owed a duty to defend
the insured went into receivership, the excess
liability insurer did not owe such a duty “under the
terms of the contract”).
5 Dorismond maintains that “ACE assumed that
duty to defend in it’s [sic] admission in the
Adversary Complaint in bankruptcy and therefore,
(continued...)
5(...continued)
it had a duty to defend by its own creation.”
6 Dorismond also asserts that a settlement
reached in the bankruptcy proceedings moots the
current case. We disagree.
7 See, e.g., Laster v. Am. Nat’l Fire Ins. Co.,
775 F. Supp. 985, 995 (N.D. Tex. 1991) (“[In-
surer] is at the mercy of the insured to see that
proper steps are taken in [its] defense . . . . Im-
plicit in an excess insurance contract of this kind is
an obligation on the part of the insured to take
reasonable steps to avoid legal liability . . . .”);
State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d
696, 714 (Tex. 1996) (“In no event, however, is a
judgment for plaintiff against defendant, rendered
without a fully adversarial trial, binding on defen-
dant’s insurer . . . .”).

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4
case,8 Service consciously allowed the court to
enter a default judgment. The only way it
could have incurred more liability would have
involved an incompetent and belligerent attor-
ney who spurred the judge to enter numerous
contempt citations.
Service deliberately decided not to take any
action, as shown in its August 2, 2002, letter
to ACE. Supra note 1. Service’s inaction
provides an egregious example of avoiding “a
fully adversarial trial” or even some sort of ag-
gressive settlement negotiation. Gandy, 925
S.W.2d at 714. Such inaction constitutes a
breach of Service’s duty to its insurer.
Because Service breached its duty to
mitigate damages, ACE has no obligation to
pay Dorismond’s default judgment. The
summary judgment is AFFIRMED.
8 In Laster, for example, the insured at least be-
gan with an attorney but then mishandled that
attorney’s withdrawal from the case. Laster, 775
F. Supp. at 996-98.

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